Good thoughts on the state of the oil industry.
Exxon Mobil Chairman and CEO Lee Raymond
Excerpts from a speech to the Woodrow Wilson International
Center for Scholars, June 7, 2004
Fundamentally, oil will remain a commodity and the U.S. will
remain only a participant in the world market. Like it or not, we
in the U.S. are only one of several players in the global supply
and demand balance. In any future energy outlook, we cannot
Now energy use is rising most rapidly in the developing world,
partly because this part of our world is experiencing faster
economic growth than the developed world, and partly
because developing countries use energy less efficiently. In fact,
the developed world uses only one-third the energy of the
developing world per unit of GDP.
We see overall global energy use growing by about 40 percent by
And, inevitably, most of the energy that will be used for many
decades will continue to be from fossil fuels: coal, oil and natural
gas. For a variety of reasons, we expect fossil fuels to provide
about 80 percent of the energy used in 2020, and to increase –
and I emphasize increase – in absolute magnitude by about 65
million oil equivalent barrels per day.
Just how much is 65 million barrels per day? Well, it is close to
eight times Saudi Arabia’s current crude oil production.
At the same time, non-fossil fuel use will also increase, but only
by about 8 million oil equivalent barrels per day. We expect
only modest growth for nuclear power and hydropower, despite
advantages in terms of greenhouse gas emissions, as each faces
siting limitations and environmental obstacles.
While there can be little doubt that wind and solar will grow
rapidly, these start from a very small base and even with
extremely rapid growth will only supply about one-half of one
percent of the world’s energy in 2020.
The predominant energy sources will remain oil and gas, because
with current technology these are at once both the least
expensive and the most versatile. These are significant
advantages and have proven to be enduring.
Now some will ask if we might be understating the roles for solar
or wind or hydrogen in this two-decade outlook. And I can
understand the question, because these as well as biofuels have
enormous federal subsidies designed to accelerate their market
These are several reasons behind our outlook on these alternative
Currently, ethanol from corn is neither an economic or energy-
efficient choice, as it can require more energy to produce than it
generates in the end. And it relies upon using significant land
areas, land that would otherwise go to food crops or forest cover.
To give you some perspective, if we tried to replace just 10
percent of the gasoline the U.S. will use in 2020 with corn-based
ethanol, we would need to plant an area equivalent to Illinois,
Indiana and Ohio solely to grow the grain needed as feedstock.
The difficulty of that can be appreciated when you realize that
this area is about one-sixth of the land we currently use in the
United States for growing all our crops.
Solar and wind have other challenges. Wind power is usually
more expensive than fossil fuels, though its costs can be
competitive under ideal conditions. It is constrained by being
site limited, intermittent and subject to growing objections due to
its undesirable visual and noise impacts on the landscape.
Solar power is of course an energy source of significant
potential, but it is currently far more expensive than fossil fuels,
and also suffers from being intermittent. After all, the sun does
go down every day .
First and foremost, the rest of the world and the U.S. will
increasingly need energy from the Middle East. This is not a
matter of ideology or politics – it is simply inevitable. A widely
respected industry periodical estimates that about 50 percent of
proved worldwide oil and gas reserves reside in the Middle East,
with Saudi Arabia alone having about one-fifth of the world’s oil
reserves. We need to accept the reality of this rather than
undertake expensive and risky steps trying to avoid it.
Without question the key to hedging the risks for America’s and
the world’s energy future remains broadening the base of
geographic locations from which we get our oil and gas. We
should not fall into the trap of imagining that the U.S. can
divorce itself from global energy markets.
We periodically hear calls for U.S. energy independence, as if
this were a real option. The fact is that the United States is a part
of the world energy market, and we must participate and compete
in that market. And we need to recognize the rest of the world
will also be petroleum importers – China, Japan, India, nearly all
of Southeast Asia, all of Europe except Norway, and much of
These countries are competing with us for access to the world’s
supply pool. The U.S. has no guaranteed or preferential supply
Similarly, we do not have the resource base to be energy
independent. Even if we are prepared to develop more petroleum
supplies here, we will still be far, far short of our needs. And in
doing so, we simply cannot avoid significant reliance on oil and
gas from the Middle East because the world’s supply pool is
highly dependent upon the Middle East .
Many governments in the Middle East, Africa and other parts of
the developing world, face enormous social needs. Yet they are
also ill equipped to address those needs because they lack money
and expertise and have institutional frameworks that are still
In some places, these governments continue to face strong
internal dissent and armed opposition. Where we rely upon these
countries for a considerable portion of our petroleum supplies,
the risks that they face become our risks.
The United States therefore needs to continue a commitment to
polices that recognize the challenges faced by many important oil
and gas producing countries, policies that can play a significant
role in addressing such challenges. [ed. i.e., trade liberalization
and international financial institution participation in energy
projects from the likes of the World Bank.]
(And) we need to muster the political will, based on a realistic
energy outlook, to allow further development of the energy
resources to be found in the United States. This includes those
that may be offshore California and Florida, in the Rocky
Mountains and in northern Alaska .
(If) we do not, as a nation, explore and develop energy from
prospective areas in the U.S., and remain committed to use
energy more efficiently, the consequence will be even greater
dependence on energy from areas such as the Middle East.
There is not realistic alternative, at least for the foreseeable
The energy investments required to meet the world’s growing
demands will be huge.
For example, the International Energy Agency last year
estimated that an average of $200 billion, or its equivalent in
inflated dollars, would need to be invested each year to develop
and supply the oil and gas that the world will need out to 2030.
The investments required for power generation are even larger.
200 billion dollars annually is a lot of money, and the industry
will need to compete with a host of alternatives available to
investors for those funds. And it is investors that will be the
primary determinants of whether the opportunities are attractive.
At the same time, governments have much to do with creating
the essential conditions necessary for favorable decisions by
Source: Woodrow Wilson International Center for Scholars /
Hott Spotts will return June 24.